Cyber cafes fail to deliver profits

Restaurants, bars and coffeehouses featuring computers have spread across the country from their California origins during the early 1990s. But after an early round of fanfare surrounding their openings, many have quietly folded.

"When we opened in 1996, there were seven other cyber cafes within five miles of us. Today, they're all gone," says Daniel Kite, owner of three such establishments called Screenz, one in Chicago's Lincoln Park neighborhood and two in that city's suburbs. "Opening a cyber cafe is still trendy, but I think most people who have them are struggling to make it work."

Closing left and right
Indeed, cyber cafes are closing in large markets and small: From the Virtua Cafe in Miami Beach to the Food and Friends Online in Winter Haven, Fla.; from the CyberStache in Atlanta to the Hard Drive Cafe in Athens, Ga. In the Chicago suburb of Crystal Lake, Ill., where the Cyber Cafe ceased operations in 1997 after eight months, Michelle Rentsch, the city manager, notes that two tech-free cafes are thriving.

Brad Jancik, who started CyberStache in 1996 with his college roommate and folded it last November, says, "It was hard to see it growing much beyond break-even." He says they applied for a beer and wine license in order to attract more customers, but the permitting stalled. He is now building commercial Web sites.

Some observers say the cyber-cafe concept is stumbling because it is being overtaken by the sales of cheap home computers, the proliferation of laptops, and Internet access at a widening variety of locations that don't require you to buy an expensive cappuccino or endure a sticky keyboard.

'It's all around you'
Business travelers, for example, a core target audience for cyber cafes, increasingly find that they can check e-mail or surf the Web from their hotel rooms, the airport or even the stationary bike in a health club. Mickey Butts, managing editor of the Industry Standard, a San Francisco-based magazine that covers the economics of computer businesses, says, "You don't have to go to a cyber-anything anymore; it's all around you."

Further, he points out, "The best-connected 'Net-heads' are carrying around hand-held devices like the PalmPilot and Web phones. They wouldn't think of stopping at a restaurant to use a computer."

Cyber cafes can drain relatively deep corporate pockets, too. Los Angeles-based HOB Entertainment Inc., which owns seven House of Blues restaurants in such cities as New Orleans and Chicago, has pulled the plug on some of the cyber ideas it started promoting in the mid-1990s. In Chicago, the company wired 100 restaurant tables for computers. Fortunately, says HOB's Stephen Felisan, House of Blues only installed a handful of computers before realizing that few customers wanted the devices served up along with their food or drinks. "It didn't really take off. People ... didn't really want to check their e-mail in the middle of having a good time," he says.

That's not to say the chain hasn't found some success. "We came across something we didn't expect: Big parties, corporate meetings and product demonstrations where people do want computers at their tables," Felisan says. "It's a mistake for venues such as ours not to get wired."

Positive lesson
Indeed, there are some opportunities for success despite falling computer costs and deepening penetration of computers into households (about 40 percent of Americans households own a computer, according to Internet industry estimates).

The lesson, says Kite at the Screenz chain in Chicago, is better equipment and software. Consumers will still flock to a cyber cafe that features simpler, faster and higher-quality computer services than they are willing to pay for at home. Thus he charges $9.60 an hour, roughly twice the computer-use fees at most cyber cafes. "Our customers pay that only because we have designed a browser, and other features are integrated so that you only have to click once to use them all, including games that we have programmed right into each machine."

And offering great computer systems is much more important than brewing a great cup of coffee, says Kite. "Food and beverage sales are only about 13 percent of our revenue."

Further, Screenz interiors are more similar to modern offices than to coffeehouses. "Frankly, the idea of coffee with a computer is a nonstarter. Coffee and food will help get people to stay longer, but it won't bring them in."

Still, some people just can't resist investing in cyber cafes. "What other business can you start for about $40,000 that's so much fun?" says Randy Stoeckinger, owner of the Cybercup Internet Coffeehouse in Tampa, Fla. He is a 46-year-old computer technician whose main source of income of late is headhunting for people of similar skills on behalf of various companies in central Florida.

At Cybercup, which opened in 1996, "I run it most of the time with just one employee, and I pay my bills -- not much more. We're an idea that hasn't quite caught on yet." He adds, "I wouldn't put my life savings into one of these."

Some entrepreneurs refuse to be dissuaded from trying. In Lakeland, Fla., 26-year-old Jim Frederick has just opened the Cyber Nexus Cafe. He decorated the coffeehouse himself, using as a theme the 1994 science-fiction film "Stargate," in which an Egyptian temple holds a secret to intergalactic travel.

"We have something for almost everyone," he says. "Internet access for businesspeople who want to check their e-mail or investments at lunch, interactive games for kids who come in after school and a coffeehouse for college students at night."

But what about the problems other such cafes have had? Frederick says: "I think we're being discovered, and besides, we're the first of our kind here."